Updated at 7:30 a.m. on November 29.
After cap-and-trade legislation died this summer and with a renewable electricity standard facing a similar fate, clean energy advocates are lobbying Congress on a last-ditch hope to keep their industries afloat: tax incentives.
A handful of key financial incentives or related deadlines expire at the end of this year. They amount to roughly $7 billion ($5 billion of which goes to ethanol and the rest to renewable electricity sources, mainly solar and wind power). Congress is expected to vote on some type of omnibus tax package during the lame-duck session, but it remains unclear what tax extensions will make it into an overall bill.
“If the RES [renewable energy standard] doesn’t pass, and that’s a long-shot right now, and clearly we’re not going to have a price on carbon for a number of years, we’re left with tax policy as the only federal policy of any significance to promote renewable electricity generation,” said Richard Glick, director of government affairs for Iberdrola Renewables, the second-largest wind developer in the United States.
Advocates for renewable energy find themselves in an uncomfortable position fighting alongside ethanol proponents to extend tax credits. The extension of the 45 cents per-gallon ethanol tax credit has always been the No. 1 issue for corn-based ethanol backers. But renewable energy proponents had focused most of their lobbying on bigger targets, namely a renewable energy standard and policy that prices carbon emissions.
“It’s never easy to get tax policy to go your way,” Dan Adamson, the Solar Energy Industries Association’s top lobbyist, told National Journal last week. “But it is true that the politics of tax policy have not changed the way the politics of climate and the RES have changed.”
Rewind two years to when President Obama was taking office alongside a Democratic-controlled Congress, and the prospects for comprehensive climate legislation, including a RES, never seemed brighter. Many renewable energy proponents, including Adamson, did not predict they would be in the position they are now: fighting tooth and nail for tax policy they had deemed secondary to an RES and cap-and-trade bill.
“I’ve been in town for a long time, and sometimes you’re up and sometimes you’re down,” said Adamson, who prior to joining SEIA in May has worked for the Federal Energy Regulatory Commission, Energy Department and nearly a decade as a Hill aide. “But I did think the climate issue was more viable politically than it turned out to be.”
Renewable energy advocates have conceded that the renewable electricity standard sponsored by Energy and Natural Resources Chairman Jeff Bingaman of New Mexico and retiring Republican Sen. Sam Brownback of Kansas, almost certainly won’t pass this Congress. So they are focusing on a Treasury Grant Program, whose construction deadline for renewable energy projects expires at the end of this year.
“It’s our strong view that if there is some type of lame-duck deal on taxes, that the prospects are very good that extension of the Treasury Grant Program will be in that package, and we’re working very hard and very aggressively to that end,” Adamson said last week. “(Two weeks ago) we had 10 solar CEOs in town lobbying Congress and the administration.”
The grant program, created as part of last year's stimulus, gives grants to renewable energy developers in lieu of tax credits that were rendered practically useless following the 2008 economic collapse when large investment firms that had provided the tax equity for the credits lost their taxable incomes.
“Tax equity markets have not been restored. There are not a lot of companies we can partner with that have taxable incomes,” Glick said. “If we can’t get a project started by the end of this year, we’re out of luck. That’s why all renewable energies are working together to try to extend the construction deadline.”
Earlier this month the trade groups representing the wind, solar, geothermal and biomass sectors sent a letter to congressional leadership asking for that extension, as did 22 environmental groups including the Sierra Club and Natural Resources Defense Council in another letter Friday to Senate leadership. They all say that the program has created tens of thousands of jobs, and if the construction deadline is not extended, nascent renewable industries will grind to a halt.
“It’s not clear what the scale is, but there are some projects that are on the drawing board that won’t go forward if it’s not extended,” Adamson said. “The opportunities are lost. We have an estimate that a two-year extension would create 65,000 new solar jobs. So I think you could forgo tens of thousands of jobs if it’s not extended.”
The wind and solar industries have gained the most from the Treasury Grant Program and thus have the most to lose if the extension deadline is not extended. According to a fact sheet by SEIA, the wind industry has been awarded 85 percent of the money associated with the program ($4.6 billion) and solar 7 percent ($396 million). The solar industry has received the most grants by number, with nearly 81 percent of the total (1,118). Wind developers have secured 14 percent of the total grants (196).
While a two-year extension has not been scored by the Congressional Budget Office, Adamson says such an extension would cost $1 billion to $2 billion.
Congressional support is mixed. Adamson said two Republican senators, John Ensign of Nevada and George LeMieux of Florida, have “been very supportive recently.” A Senate Finance Committee aide said Chairman Max Baucus of Montana “remains committed to fighting for crucial renewable energy tax incentives,” which includes extending the Treasury Grant Program’s construction deadline and the ethanol tax credits.
Senate Finance ranking member Charles Grassley of Iowa does not support extending the construction deadline. He needs to look at it more, his spokeswoman said. Grassley does strongly support extending the ethanol tax credits and is sponsoring a bill with Sen. Kent Conrad, D-N.D., to extend that credit.
The White House supports extending both the ethanol tax credits and the construction deadline for the grant program, and the latter of the two was recently touted by Vice President Joe Biden at a White House Middle Class Task Force meeting.
“If a company goes out and builds and operates a wind, solar or other clean energy project, it gets a 30 percent grant, upfront, to make that investment,” Biden said on Nov. 9. “This program was created by the Recovery Act and has been hugely successful, leading to nearly 4,000 new clean energy projects over the past two years here in the United States.”
Ethanol proponents, mainly groups representing corn-ethanol producers, are in a similar boat as the other renewable energy groups. Administration officials have been meeting regularly with ethanol groups to broker a deal to extend the 45 cents per-gallon tax credit and lay the foundation for a reformed long-term biofuels policy. If the tax credit passes, many ethanol insiders predict it will be at a lower level than it is now.
“My understanding is that most of the people who are really close to everything feel like they would be really lucky if they got 36 cents and a one-year ‘can kick down the road’ outcome,” said David Hallberg, who founded the Renewable Fuels Association, a corn-ethanol group.
An administration official, who spoke on condition of anonymity because negotiations are ongoing, said the White House is willing to compromise on reducing the tax credit from the current 45 cents, which costs taxpayers nearly $5 billion, to something lower, perhaps 36 cents, which was included in a House Ways and Means Committee tax package floated this summer. That would cut the cost to about $3.8 billion.
Senators like Tom Harkin of Iowa still want the current 45 cent credit extended, and the corn-ethanol groups are divided over the lower 36 cents. Bob Dinneen, current president of RFA, said it’s “certainly something we could live with it,” while Growth Energy CEO Tom Buis said “we’re not going to be pleased” if that happens.
The policy intricacies of both the Treasury Grant Program and the ethanol tax credit will probably have less effect on the ultimate outcome than whether or not an omnibus tax bill with tax extenders is considered at all.
Senate Majority Leader Harry Reid of Nevada has said he will force votes on dueling Democratic and Republican proposals on the Bush-era tax cuts, which could provide a legislative vehicle for tax extensions. But it remains unclear how that or other measures that spring from tax negotiations will ultimately fare and how long the 111th Congress will be in session before adjourning for the year.
“The main obstacle is, is Congress going to pass some type of big piece of legislation at all that this could be attached to,” Adamson said. “That’s the main obstacle. And that’s beyond the influence of renewable and efficiency communities. It’s a macro political question.”
This article appears in the November 29, 2010 edition of National Journal Daily PM Update.